Wall Street de-capitalizes one of its own

February 22, 2013

When we speak about Wall Street, what comes to mind most often are its greed, the big fat bonuses for its executives, its addiction to more and still more… This is known territory, with known defenders and detractors. Today, we take a detour, and focus instead on the irrationality and speculation that are at the very root of our financial system.

A few weeks ago, Apple Inc. (previously Apple Computers) announced financial results for the first quarter of 2013. With $13.1 billion profit on $54.5 billion revenue, this was the best quarterly results ever in the company’s history. By any rational, objective measure, the company’s performance was spectacular, especially in a context of an ongoing global economic downturn. However, as Charles Moore fromtechnologytell.com says, this performance was “not good enough for Wall Street”. So, Wall Street “punished Apple with a further six percent share price drop to $482.45 in after-hours trading, on top of a nearly 30% swoon over the past several months since Apple stock hit an all-time historical high of $700 late last summer.”

Apple has lost $246 billion in market value on Wall Street between Sept 19, 2012 and January 2013. On September 19, 2012, Apple shares rose to $702.98 for a market value of $659.81 billion. As a comparison, that is more than 35 times that of Dell’s current market value of $18.16 billion. Apple is the second-largest publicly traded corporation in the world by market capitalization, with an estimated value of US$414 billion as of January 2013. This loss melted away a full year of the company’s total revenue. How can we have economic growth under such a system? Has anyone asked what specific analytical methods were used by the Wall Street financial pundits to prognosticate on the future performance of a company like Apple? Were they sitting in their plush offices, staring at crystal balls or reading tarot cards? Leaving the future of our country in the hands of these Wall Street charlatans does not only show a great lack of intelligence – it is outright dangerous!

Now, the Apple CEO, Tim Cook, has to go on Showbiz and be seen with Michelle Obama at the State of the Union address or on the podium at the Goldman Sachs Technology Conference! That is rather unusual for an Apple CEO! Reuter’s blogger Felix Salmon argued recently that Apple should ignore its stock price, that it is based on nothing, that the stock says very little about the future of Apple, and that the company should not be concerned.

For years now, Apple has never underperformed relative to its own prognostication. But, the Wall Street analysts have read their cards or pig innards or whatever, and predicted the future of the company (wrongly!), instead of investing based on what the company has done and what it is currently doing. What is this, if not speculation? Just so we are all on the page, the Oxford English Dictionary defines speculation as “the forming of a theory or conjecture without firm evidence.” And this is not an abstract problem. This guessing game is occurring in the context of millions out of work, increasing disparity between rich and poor, states and cities slowing down their development and reducing access to basic services! This irrational system based on speculation is simply unsustainable. This false competition where the “best” are losing has no place in the future of human societies and civilization.